Protecting Purchased Goodwill: Sale-of-Business Restrictive Covenants Under National Scrutiny

The useful part

Restrictive covenants entered in connection with the sale of a business occupy a different place than ordinary employment noncompetes. In a sale transaction, the buyer is not simply trying to limit a former employee's next job. The buyer is paying for goodwill, customer relationships, confidential information, and the seller's promise not to immediately undermine the value of what was sold.

How it works

• The court held that the buyer bargained for those protections because the seller had built the company, served as its public face, and possessed the customer relationships, technical knowledge, and business...
• Courts generally remain more receptive to restrictive covenants tied to a bona fide sale of a business rather than covenants imposed solely as a condition of employment.
• Recent decisions reinforce an important limit: the label "sale of business" is not enough.
• A covenant must be tied to the goodwill and competitive space the buyer actually purchased—not the buyer's broader enterprise or an employment-style restraint on the seller's future livelihood.
• More Latitude, But Not a Blank Check Recent Delaware Court of Chancery decisions illustrate both sides of the enforceability line.

What to take from it

28, 2026), the court enforced restrictive covenants against the founder, CEO, and longtime principal of a company sold for $450 million. The covenants were included in the stock purchase agreement and included a five-year noncompetition covenant, employee non-solicitation covenant, and customer/supplier non-solicitation covenant.